Turkey: Public – Private Partnership Model for Health Care Projects

Studies conducted by the Ministry of Health for an alternative financing method to enable the establishment of new health facilities has resulted in adoption of the Law No. 5396 ("Law"), which entered into force on 3 July 2005. The Law inserts an additional article into the Law on Basic Health Services dealing with framework issues.

The Law provides that projects for the establishment of new healthcare facilities or the renovation of existing facilities may be realized by individuals or private entities through entering into a contract with the Ministry of Health. These projects to be launched by the Ministry of Health cover thirteen different regions1 of Turkey, provided that more than one healthcare facility will be built in large cities such as İstanbul, Ankara and İzmir.

The projects are planned to be realized under an alternative financing model as a build-lease-transfer ("BLT") transaction. The BLT model may be considered as a variant of the build-operate-transfer ("BOT") model that was often used in Turkey particularly in the mid-1990s. The BOT model, mainly used in energy and infrastructure projects, enables the realization of the projects that require a significant level of funding, as well as technology, with the collaboration of the State and private investors. The model also enables the State to benefit from the management skills of private investors. Private investors may or may not be guaranteed a certain amount of revenue and ordinarily seek to recoup the investment cost by operating the facilities they build under the project for a certain period of time determined in the contract entered into with the relevant State body. Under the BLT model, which will be used for the construction of health facilities, the investors seek to recoup the investment costs by leasing the facilities built or renovated to the State for a limited period.

The BLT model is believed to provide part of the solution for the insufficient bed capacity of Turkey’s hospitals, and assist with the need for new technology and medical equipment. The current number of hospital beds in Turkey is 180,000 even though the number of hospital beds targeted for the end of 2005, as stated in the five-year development plan, was 200,000. The reasons for this insufficiency, as detailed in the proposal submitted to the Parliament for the approval of the Law, are explained as arising from the lack of sufficient funding2 as well as the high population growth.

Basic Components of the Law

The Law sets forth the general terms and conditions applicable to the projects. The details applicable to the tender process, as well as the contents of contracts to be entered into by the State and the private investors, are to be determined by the implementation regulation to be jointly issued by the Ministry of Finance, the Ministry of Health, the State Planning Organization and the Undersecretariat of Treasury. It is reported that the representatives of these governmental bodies are close to finalizing the Law’s implementation regulation.

According to the Law, the High Planning Council is the authorized body for determining the healthcare facilities to be built according to the need. The Ministry of Health will produce the preliminary designs and the basic standards applicable to the projects and will launch a tender3, open to the participation of both local and foreign companies.4 The construction phase is restricted by the Law to a time period of thirty-six months. Following the construction of the relevant healthcare facility, it will be leased to the Ministry of Health by the investors for a maximum term of forty-nine years. The facilities will be completely transferred to the Ministry of Health, at no extra cost, at the end of the lease period, subject to the approval of the Transfer Committee.

Certain exemptions are also set forth by the Law, such as an exemption from stamp tax and duties for all contracts to be entered into by the State and private investors under the projects and the relevant documentation.

The following issues will be taken into consideration when determining the lease amount to be paid by the State to the investors:

(i) whether the immovable property upon which the health facility will be built belongs to the investor, or if it is provided by the Undersecretariat of Treasury;

(ii) cost of the investment realized by the investors;

(iii) whether medical equipment will also be provided by the investors; and

(iv) whether non-medical services will also be provided by the investors.

The tenders are expected to be launched by the Ministry of Health in the second half of 2006, following the finalization of the implementation regulation, and the tender announcements must be made ninety days prior to the tender date. It remains to be seen whether the target dates can be met.

Footnotes

1. These areas are İstanbul, Ankara, İzmir, Bolu, Samsun, Aydın, Denizli, Kırşehir, Alanya, İçel, Gaziantep, Malatya and Elazığ.

2. The share of the Government’s health expenditure in the total budget is approximately 3%, although the World Health Organization’s recommended minimum ratio for developing countries is 10%.

3. The Law provides that the tenders to be launched under the Law are not subject to State Tender Law No. 2886 and the Public Tender Law No. 4734.

4. According to the information published in the press, the tenders will be realized within the framework of the negotiation method.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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